Policy References:

GASB Statement No. 49 – Accounting and Financial Reporting for Pollution Remediation Obligations

(GASB Codification Section P40 – Pollution Remediation Obligations)

Process and Document Preparation:

BACKGROUND

Governmental Accounting Standards Board Statement (GASBS) 49 – Accounting and Financial Reporting for Pollution Remediation Obligations – establishes uniform reporting standards for the financial reporting and disclosure requirements relating to pollution remediation obligations by governments. GASBS 49 defines when pollution remediation-related obligations should be reported and how those obligations’ costs and liabilities should be determined.

Pollution remediation obligations are obligations to address the current or potential detrimental effects of existing pollution (e.g., hazardous wastes spills and asbestos contamination) by participating in pollution remediation activities such as site assessments and cleanups. Pollution remediation obligations exclude pollution prevention or control obligations relating to current operations, and future pollution remediation activities that are required upon retirement of an asset, such as site closure and post-closure care.

Agencies that have pollution remediation obligations report these obligations at fiscal year end through the internet based Agency Financial Reporting Package.

REPORTING AND FOOTNOTE DISCLOSURE REQUIREMENTS

Financial reporting and disclosure is required by the State when a site it operates, or is responsible for, is known to be polluted and an obligating event has occurred. Obligating events include the following:

1. The government is compelled to take pollution remediation action because of an imminent endangerment.
2. The government violates a pollution prevention–related permit or license.
3. The government is named, or evidence indicates that it will be named, by a regulator as a responsible party or potentially responsible party (PRP) for remediation, or as a government responsible for sharing costs.
4. The government is named, or evidence indicates that it will be named, in a lawsuit to compel participation in pollution remediation.
5. The government commences or legally obligates itself to commence pollution remediation.

The State is not required to search for additional potential remediation situations or expand its existing pollution remediation efforts, but simply to report a liability for all pollution remediation projects that meet one of the obligating events listed above.

Obligations that can be reasonably estimated should be expensed, except under certain conditions where obligations can be capitalized (detailed below). The liability should include direct expenses (for example payroll, materials, equipment, and legal and professional services) as well as indirect expenses (for example, general overhead). The amount to report is calculated based on an expected cash flow measurement technique. If the liability cannot be reasonably estimated, then a government will describe the nature of the pollution remediation in the notes to its financial statements. Obligations may be reduced by recoveries.

Footnote disclosures related to the liabilities are required and must include the following items:

1. The nature and source of pollution remediation obligations (for example, federal, state or local laws or regulations);
2. The amount of the estimated liability, the methods used for the estimate, the potential for changes in the amount due to such items as price changes, new technology, or applicable laws or regulations; and
3. Estimated recoveries that could reduce the liability.

CAPITALIZATION REQUIREMENTS

Pollution remediation outlays should be capitalized when goods and services are acquired if acquired for any of the following circumstances:

1. To prepare property in anticipation of a sale.
   • Capitalize only amounts that would result in the carrying amount of the property not exceeding its estimated fair value upon completion of the remediation.
   • Capitalization is appropriate only if the outlays take place within a reasonable period prior to the expected sale, or are delayed, but the delay is beyond the government's control.
2. To prepare property for use when the property was acquired with known or suspected pollution that was expected to be remediated.
   • Capitalize only pollution remediation outlays necessary to place the asset into its intended location and condition for use.
   • Capitalization is appropriate only if the outlays take place within a reasonable period following acquisition of the property, or are delayed, but the delay is beyond the government's control.
3. To perform pollution remediation that restores a pollution-caused decline in service utility that was recognized as an asset impairment.
   • Capitalize only pollution remediation outlays necessary to place the asset into its intended location and condition for use.
4. To acquire property, plant, and equipment that has a future alternative use.

• Capitalize outlays only to the extent of the estimated service utility that will exist after pollution remediation activities uses have ceased.

NOTE: Remediation outlays not eligible for capitalization treatment above should be expensed. These expensed amounts should not be reported as part of an asset’s value.

Guide to Financial Operations

REV. 01/01/2017